Define: White Knight

UK Accounting Glossary

Definition: White Knight


Quick Summary of White Knight


The accounting definition of this term derives from the English definition for the term White Knight. Someone or something that rescues or saves another person or thing from a bad situation especially : a company that buys a second company in order to prevent it from being taken over by a third company.



What is the dictionary definition of White Knight?

Dictionary Definition


A White Knight is a person or firm that makes a welcome takeover bid for a company on improved terms relative to an unacceptable/unwelcome bid from a black knight.

If a company is the target of a takeover bid from a source which is considers unattractive or undesirable, it will often seek out an offer from an White Knight (An entity which is deemed as a more suitable owner of the company).


A purchaser for a company, willing to rescue it from an unwanted takeover bid by another buyer.

A company threatened with takeover may welcome a competitive bid by a white knight as a means of improving the terms offered by the first bidder, whether or not the alternative bid is ultimately accepted.


Full Definition of White Knight


The accounting definition of this term derives from the English definition for the term White Knight.

Someone or something that rescues or saves another person or thing from a bad situation especially : a company that buys a second company in order to prevent it from being taken over by a third company.

In business, a white knight is a friendly investor that acquires a corporation at a fair consideration with the support from the corporation’s board of directors and management.

This may be during a period while it is facing a hostile acquisition from another potential acquirer (black knight) or it is facing bankruptcy.

White knights are preferred by the board of directors (when directors are acting in good faith with regards to the interest of the corporation and its shareholders) and/or management as in most cases as they do not replace the current board or management with a new board, whereas, in most cases, a black knight will seek to replace the current board of directors and/or management with its new board reflective of it’s net interest in the corporation’s equity.

The first type, the white knight, refers to the friendly acquirer of a target firm in a hostile takeover attempt by another firm.

The intent of the acquisition is to circumvent the takeover of the object of interest by a third, unfriendly entity, which is perceived to be less favourable.

The knight might defeat the undesirable entity by offering a higher and more enticing bid, or strike a favourable deal with the management of the object of acquisition.

The second type refers to the acquirer of a struggling firm that may not necessarily be under threat by a hostile firm.

The financial standing of the struggling firm could prevent any other entity being interested in an acquisition.

The firm may already have huge debts to pay to it’s creditors, or worse, may already be bankrupt. In such a case, the knight, under huge risk, acquires the firm in crisis.

After acquisition, the knight then rebuilds, or integrates the firm.

A number of variations of the term have been used and these include: a grey knight which is an acquiring corporation or individual that enters a bid for a hostile takeover in addition to the target firm and first bidder, perceived as more favourable than the black knight(unfriendly bidder), but less favourable than the white knight (friendly bidder).

Also, a white squire, which is similar to a white knight except it only exercises a significant minority stake, as opposed to a majority stake.

A white squire doesn’t have the intention, but rather serves as a figurehead in defence of a hostile takeover. The white squire may often also get special voting rights for their equity stake.

 



Examples of White Knight in a sentence


If anyone has been set up to be the white knight in the Democratic Party fund-raising debacle, it is them.


White Knight FAQ's


What are examples of White Knight takeovers?
  • 1953 – United Paramount Theaters buys nearly bankrupt ABC.
  • 1980 – Renault buys a controlling stake in American Motors, which saves the struggling American automaker from bankruptcy.
  • 1982 – Allied Corporation buys Bendix Corporation in a situation involving the “Pac-Man defence”. Allied is drafted in when the company that Bendix tries a hostile takeover on fights back by buying up Bendix stock in attempt to create a reverse hostile takeover.
  • 1984 – Chevron Corporation acquired Gulf Oil after Gulf tried being a white knight to Citgo in 1982 in order for Citgo to avoid a hostile takeover by T. Boone Pickens. Pickens then turned his attention to Gulf, leading to the Chevron-Gulf deal.
  • 1984 – Sid Bass and his sons buying significant interest in Walt Disney Productions as a defence against Saul Steinberg’s hostile bid for the company.
  • 1986 – George Soros’s Harken Energy buys George W. Bush’s Spectrum 7.
  • 1987 – Kluwer Publishers merges with Wolters Samson as a defensive move against an attempted hostile takeover of Kluwer by Elsevier.
  • 1998 – Compaq merges with financially weak DEC.
  • 2001 – Dynegy attempts to merge with Enron to cover Enron’s massive debts (the merger failed as it became obvious that Enron had been committing fraud, resulting in the Enron scandal).
  • 2003 – SAP was seen by analysts as the most likely to help defeat Oracle’s hostile bid for PeopleSoft, but it came to nothing.
  • 2006 – Severstal almost acted as a white knight to Arcelor as the merger negotiations were in place between Arcelor and Mittal Steel.
  • 2006 – Bayer acted as a white knight to Schering as the merger negotiations were in place between Schering and Merck KGaA.
  • 2007 – Nissin Foods launches a friendly 37bn yen ($314m; £166m) bid for Myojo Foods after US hedge fund Steel Partners offered 29bn yen to buy the firm.
  • 2008 – JPMorgan Chase acquires Bear Stearns allowing Bear Stearns to avoid insolvency after Bear Stearns stock price suffered a precipitous decline, with it’s market capitalisation dropping by 92%.
  • 2008 – Volkswagen acquires Porsche, after Porsche launched a hostile takeover of Volkswagen by purchasing enough Volkswagen shares to control 75% of the company at one point.
  • 2008 – PNC Financial Services buys National City Corp. after National City was denied TARP funds in order to stay afloat due to increasing concerns that National City would fail due to the subprime mortgage crisis
  • 2009 – Fiat S.p.A. takes over Chrysler, saving the struggling automaker from liquidation. The two companies eventually merge into Fiat Chrysler Automobiles.

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Definition Sources


Definitions for White Knight are sourced/syndicated from:

  • Oxford Dictionary Of Economics
  • BusinessDictionary.com
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 4th May 2019.